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Forget gold! I’d invest £5k in cheap FTSE 100 shares as prices fall to recession levels

You can find cheap FTSE 100 shares everywhere you look these days. The index is full of them, as the UK crashes into recession. If I had £5,000 to invest, or any other sum, I’d hunt down top large-cap stocks at today’s bargain prices.

Many investors are fleeing into safe-haven gold to sit the recession out. Personally, I would rather buy FTSE 100 stocks, while they are this cheap. I believe equities will prove more rewarding than gold over time.

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Investors always race towards gold in times of uncertainty. While the precious metal has few practical uses, it is a proven store of value.

The gold price has shone in the 21st century as a result. It is up an incredible 530% in the last 20 years. My worry is that it will struggle to climb much higher from today’s level. We seem to be at the point of maximum fear, as the scale of the looming recession sinks in.

I’d buy cheap FTSE 100 shares

There is an awful lot of pain priced into gold today. Understandably so. Yet this leaves it vulnerable when the worst of the downturn is over. It could crash from today’s levels.

Gold’s big problem is that it does not pay any income.  Right now, that is less of a disadvantage, as FTSE 100 companies slash dividends and plunging interest rates destroy cash.

However, shareholder payouts haven’t disappeared forever. Many top FTSE 100 companies are standing by their dividends. Once the pandemic recedes, others will restore theirs. At that point, gold will lose some of its lustre.

Gold pays no dividends

Some gold in your portfolio makes sense, as a diversifier. Personally I have none, a gap I intend to plug but not at today’s price. At $1,735 an ounce, it is close to its 2011 all-time high of around $1,900. Gold looks too expensive to me.

I would rather buy top cheap FTSE 100 companies at today’s low prices. In the longer run, they have much greater potential. The stock market crash in March was reversed by massive government and central bank support, which has fuelled the subsequent recovery. Once trillions of stimulus flood into asset prices, shares could fly.

As a result, markets are likely to recover long before the wider economy. If that does happen, you will be glad you picked up cheap FTSE 100 companies today. Firms that survive the crisis could end up as beneficiaries, as weaker rivals go to the wall, and make tempting acquisition targets.

In time, the dividends will return, which means you will get income on top of growth. That will never happen with gold.

Some exposure to gold makes sense, but I wouldn’t stretch beyond 5% or 10% of your portfolio. The bulk of your long-term returns will come from FTSE 100 shares. So I would recommend buying them while they are still cheap.

Like today.

Wondering where to start? Then consider these FTSE heroes.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.